Crunch time for Labour over spending

Tube may be privatised Millennium expo shelved

The crunch of the cash crisis inherited by the Labour government, with hospitals and schools facing closure and cuts, is forcing ministers to consider privatising the London Underground and cancelling the pounds 780m Greenwich Millennium Exhibition.

John Prescott, the Deputy Prime Minister, has told BBC Panorama in a programme being broadcast tonight that, as matters stand, he cannot promise to find the pounds 150m needed to stop a further deterioration of London Tube services.

Describing the agonising dilemma now faced by ministers in every spending department across Whitehall, Mr Prescott says: "It's like the hospital services. We're told they're hundreds of millions of pounds short, and they may be closing hospitals.

"The schools are being told that they are desperately short and the buildings are falling down."

The desperation of the Government's plight has been aggravated by the Chancellor's pledge to stick to the Tories' departmental spending plans for two years - when those plans were already falling apart. That could well be shown by a National Audit Office report due out this week.

Mr Prescott is drawing up plans to privatise the Tube in spite of Labour's campaign promise that the party was opposed to a "wholesale" sell-off.

Panorama has obtained a letter from Mr Prescott to Geoffrey Robinson, the Paymaster General, outlining four options. The most controversial would see the Tube system split up into an infrastructure company "similar in scope to Railtrack" with an operating company running train services.

Another plan is to create a "public private joint venture for the whole of the London Underground business".

However, in both of these options, the joint ventures would see the private sector with "a majority shareholding" - a move bound to anger traditionalists. But, caught between tight spending limits and expectation to get cash for the ailing service, Mr Prescott believes this is the only way to "ensure that the investment was not classified as public expenditure".

The Tube is so starved of cash that some stations have to be propped up by scaffolding. Many escalators are closed rather than repaired. At present, its investment backlog stands at pounds 1.2bn and London Underground say it needs pounds 150m immediately to stop the present service from deteriorating.

Also considered is a "long concession" offered to the private sector for the whole of the Tube and the letting of individual lines, or groups of lines, to private companies.

The letter describes the timing of this process as "urgent" and calls for financial advisers, whose vast fees angered the Labour Party in opposition, to be appointed shortly. Mr Prescott also displays his awareness of his party's emphasis on spin -doctoring by pointing out that the Department of Transport press office should "brief selected journalists who are likely to report this story in a positive light".

The Conservatives pounced on the proposals. Sir George Young, the Tories' spokesman on transport, said: "It appears that the Labour Party have been forced to adopt our plans because they have none of their own."

Sir George, when he was transport secretary, had proposed to privatise the Tube and use the receipts to fund improvements.

In a statement, Mr Prescott claimed that the draft document had been stolen, adding that "nothing in the letter is inconsistent with my intention to explore all forms of public private partnerships".

The Millennium Exhibition, which needs a ministerial go-ahead this week, is now estimated to cost pounds 780m, and rising, according to government sources.

Tony Blair, who held a one-hour meeting with Chris Smith, the Secretary of State for National Heritage, in an attempt to save or salvage the project, could be the last member of the Government supporting it.

But one official said yesterday that the whole idea was now deemed so "profligate" and "wasteful" that civil servants would require a ministerial instruction to sanction it.

The centrepiece of the exhibition, the dome, was savaged by ministers at a meeting last Tuesday which was called to consider two reports by consultants.

Those reports said that the dome project was not viable, that nobody knew what they could put in it, that no further private money was available, and that more money would be needed on top of the total pounds 477m so far projected.

Frank Dobson, Secretary of State for Health, is reported to have told colleagues that the lightweight dome could turn out to be the "biggest kite in history" because the Greenwich site is so contaminated that there can be no question of allowing the dome to remain in place for more than a year.

Reports that Peter Mandelson, Minister without Portfolio, backed the scheme are only partially correct. The burden of his contribution to the discussion opposed the scheme, but in his conclusion he did say that ministers should not "have a collective loss of nerve on such a national symbol".

As the man with Mr Blair's ear, the ambiguity of Mr Mandelson's position means that none of his colleagues know whether he is speaking with the authority of the Prime Minister or not. They therefore find it difficult to know whether they should openly disagree with him.

Nevertheless, the consultants' reports will show that the entire Greenwich plan is a waste of money, and the factual and analytical reports will eventually have to be published under the Code of Open Government.

It was suggested at one point during Tuesday's meeting that if there was pounds 450m to spare for millennium celebrations, much more peace and goodwill would be generated if pounds 30m was handed out to 15 cities around the country.

NHS faces winter crisis, page 4